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The Panic Over China Outflows Takes a Breather

China Scraps Yuan Peg To US dollarChina Scraps Yuan Peg To US dollar
Phew, still got it.Photograph by China Photos/Getty Images

The worst of China’s capital outflows, which just a couple of months ago looked like they might imperil the economy, is over—for now.

The country’s central bank said yesterday foreign exchange reserves rose for the first time in five months. The unexpected news seemed to calm those worrying about the potential of a huge yuan depreciation leading into money fleeing the country.

In nominal terms China’s forex reserves rose $10 billion last month to $3.21 trillion. However, that may flatter the underlying reality: reserves should have gained $47 billion thanks to fluctuations in the exchange rates of the currencies in which China holds its reserves, says Goldman Sachs. What that means is that the central bank was still selling a lot of dollars to prop up the value of the yuan.

Capital outflows still may have been as high as $60 billion in March, says Capital Economics, a little more than the $43 billion in February. But it is far from January’s $124 billion in outflows and breaks the trend of money dramatically leaving the country. (The country’s biggest holiday falls in February, so the figures aren’t generally representative.)

China has the falling U.S. dollar and a more doveish line on future interest rate rises from the Federal Reserve to thank for steadying capital outflows and foreign exchange reserves. That has allowed the renminbi to strengthen over the past couple months from 6.58 to the dollar in the beginning of February to 6.47 today.

Any sign of the U.S. economy strengthening could yet cause the dollar to rise again, pressuring companies and individuals in China to move their money out of renminbi. But for now it appears steady, and the latest foreign exchange holdings—$3.2 trillion—may be enough for China’s central bank to keep meddling in currency markets to stabilize the currency and fight off the perception of a looming currency and economic collapse.